News

Apple to face antitrust investigation over AdMob ban

By Charles Starrett ● Thursday, June 10, 2010

U.S. antitrust regulators are preparing to launch an investigation into Apple’s decision to effectively bar AdMob from its iOS devices. The Financial Times, citing people familiar with the matter, reports that it’s currently unclear whether the Federal Trade Commission or the Justice Department will handle the investigation. Apple recently changed its iOS developer terms to forbid the sharing of user information with “an advertising service provider owned by or affiliated with a developer or distributor of mobile devices, mobile operating systems or development environments other than Apple,” effectively barring AdMob from all iOS applications. Notably, the company also added language that bars third-party analytics services. Apple is already facing antitrust scrutiny from the Justice Department in relation to its digital music business and its blocking of Flash software from its iOS devices.

Comments

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Sometimes I have to wonder who is advising Apple. It would have been one thing if they’d made this change independently to protect their customers, but the fact that it was conveniently put into place right as Apple’s own advertising backbone is being put into place and Apple wants iOS devs to incorporate their advertising pipeline into their products and not Google’s or anyone elses is practically the very definition of an anti-trust violation. Couldn’t their lawyers at least have been smart enough to tell them they ought to put this de facto ban of 3rd party advertising services into effect several months of announcing iAd so they could at least pretend it wasn’t a phallic move to eliminate competition?

Posted by Code Monkey on June 10, 2010 at 10:04 AM (CDT)

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^^FIX “...put this de facto ban of 3rd party advertising services into effect several months AHEAD of announcing iAd…”

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Seriously? Maybe once they actually read the terms of the new agreement they will get a clue. Apple only wants to ban ads from stealing users data. Duh!

Posted by SBCMAC on June 10, 2010 at 11:17 AM (CDT)

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@3: Naive much? There’s no stealing of data involved in the ban. Basically, Google’s adMob can only offer Google ads since they can’t allow any other party access to any demographic data no matter how anonymized it is. Want to advertise to males in the 35-45 group with AdMod? Sorry, that would violate the new agreement. Want to do the same with iAd, oh sure, Apple is allowed to do this - *that* IS arguably illegal and that IS why they’re being investigated.

Stop drinking the Jobsian Kool-Aid, Apple is NOT your friend, they are an amoral entity you make a deal with to gain some services in exchange for your money. Part of those services, if this is allowed to stand, allow Apple, and only Apple, to sell and/or use your personal data however they want for targeting and sales of advertising.

Posted by Code Monkey on June 10, 2010 at 11:49 AM (CDT)

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I am not sure what the justice department can do. My understanding is antitrust investigations can only happen when there is an actual monopoly that exists. Apple is third in the smartphone market in a crowded field.

Companies don’t have to be fair. It’s not great for developers in the app store, but what else is new.

What does google expect, I can’t run my own ad platform on google.

So until apple gets an actual monopoly in the mobile space, I don’t see how anything can come from an investigation.

There are only two angles that I see where apple can be investigated for antitrust. The itunes app store is the only platform for app distribution. The fact that certain smartphones are locked into certain carriers. iPhone is still only available on ATT.

So why not investigate for those, because that has been the status quo since day one.

Posted by Jeff on June 10, 2010 at 12:49 PM (CDT)

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The Irony is that Google, the first true Advertising Monopoly have sicked the Feds on to Apple over creating an Advertising Monopoly.

Doesn’t Google also have an Advertising Monopoly on Android Devices? Shouldn’t they be anti-trust trussed up too?

@CodeMonkey
Don’t think that Google aren’t storing other information on you. Look what was discovered with the WiFi mapping of the Google Vans in Europe. Google’s “Don’t Be Evil” is looking less and less relevant, the more is discovered about them.
Everything Apple is doing at the moment; iAds, banning Data Mining Ads, Safari Reader is a lot less innocuous, and much more free market than what Google have been doing for the last 5 years.
In fact, Google is currently much more predatory to the Advertising Industry than Microsoft was to the OEM software industry of the ‘90s, even taking into consideration the BeOS/Toshiba case.

Posted by Dan Woods on June 10, 2010 at 2:18 PM (CDT)

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@6: Where did I defend Google? The issue has NOTHING to do with Google, it has to do with what Apple is doing, full stop. If Apple wants to ban all advertising on the iOS, hey, more power to them. I’d support doing that 100% and there would be no Justice Dept. investigation.

The problem is that Apple is creating a hypocritical policy that doesn’t apply to Apple to squeeze everyone else out of what promises to be a lucrative market.

@5: You misunderstand anti-trust law. You certainly do not need a 100% monopoly (which, in the modern world of multi-nationals is a woefully naive threshold anyhow) on all cell phones. You only need to abuse your control of a given market to trigger an investigation. In this case, by enacting this policy Apple assumes 100% control of advertising within applications on iOS, which promises to be a very lucrative market. The investigation may decide that Apple acted within their authority, but the triggering of the investigation is a no-brainer with the timing between the policy and their own for-profit advertising business that would have had a hard time getting off the ground if Google was allowed to continue to supply advertising services.

Posted by Code Monkey on June 10, 2010 at 2:35 PM (CDT)

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Code Monkey - I fully understand that the feds need to investigate this. But, and I am not versed in anti-trust, doesn’t Walmart or Target or Macy’s control advertising within their walls? Don’t they have final say which posters or banners displays get placed to catch customers eyes? Since Apple is providing what I see as a virtual department store, don’t they garner say so in what is placed therein? I use this same point when people address the banishment of porn from the iTunes Store. Just like Walmart bans Playboy and Maxim, Apple has the right to ban Playboy and Maxim apps (which, coincidentally, they have NOT).

Again, I am not really disagreeing with you. I just seem to be looking at it differently. And I will not claim any legal expertise in the matter. Sometimes my common sense does not match the law. Go figure.

Posted by Mitch on June 10, 2010 at 2:46 PM (CDT)

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Mitch, the issue is that Apple is arbitrarily changing the rules to destroy an existing business to reap millions if not billions in revenue. This is not about stopping advertising except in the abstract. Anti-trust is not about your prerogative to do what you want with your own business, it’s about you using power you already have to gain an unfair advantage in the market.

To revisit your box store analogy: this isn’t a matter of Wal-Mart deciding not to carry something or Target choosing what posters to hang over the women’s department. This is Wal-Mart finding some way to stop Target from hanging posters at all in Target’s stores. Remember, this isn’t about ads running on Apple software, this is about a developer being able to incorporate the AdMob service into the developer’s product. The only role Apple plays in this is they made the device the app runs on. It’s a ye-old matter of follow the money:

Had Apple simply said that they were changing the policy that nobody could use automated ad services like AdMob, that would have yielded grumbling, sure, but Apple wouldn’t be profiting directly from that policy change. However, that’s not what Apple has done: They’ve launched an expensive venture to create a unified advertising service that iOS devs can easily incorporate into their products. Like all advertising, they will make more money the more people who use and see their iAd service. Why, if Apple could get this iAd service built into popular free apps they could reap bazillions in fees every year. Only there was this little problem that one of the world’s most successful advertising service companies, Google, already had a competing product live and running on iOS. Hmmm…. what to do? ;-)

Posted by Code Monkey on June 10, 2010 at 4:50 PM (CDT)

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Ok Code Monkey - I get where you are going, but you did miss one major point. The App Store. That is the Wal-Mart. Target, in my scenario, would be the Android Market. Apple isn’t saying AdMob can’t be used in the Android Market, they are saying it can’t be used in their App Store.

So, Wal-Mart carries Hoover vacuums. But they do not have to let Hoover put whatever ads they choose in the store. Wal-Mart dictates which ads it will allow. And Wal-Mart does not have any say in what ads Target uses for their stock of Hoover vacuums. It is their store after all. And the App Store IS Apples store. If a developer wants to distribute their wares in Apples retail space, they have to follow Apples rules. Apple even gives the developers the tools necessary to produce the proper ads. If they want to use a different advertising tool, they can go to the Android Market. It is pretty simple in my mind.

I think this will all come down to that line in the sand. This is Apples store and they can control what is distributed there. Google did have a foot in the door. But Apple is not only fielding an ad platform, they are changing the way those ads must be delivered (in game/app ads as opposed to redirects). Again, Apple can claim that their tools provide a “more stable, user friendly” experience. Much like the Flash argument. It is a common thing to see “We reserve the right to refuse service…”. That isn’t an exact fit for this scenario, but it is in line with a “retailers” right to operate their business.

Posted by Mitch on June 10, 2010 at 9:53 PM (CDT)

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CM - p.s. I am not being naive about any fiscal reasons Apple is doing this. I am fully aware of the potential gains. I am also fully aware that Apple is in business to make money. If it turns out they broke the rules in doing so, I will be one of the first to say “Bad Apple!”. I just think they know where the line is…and they are toeing it. ;)

Posted by Mitch on June 10, 2010 at 9:58 PM (CDT)

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We, fortunately in some cases, unfortunately in others, do not have a truly free market in the U.S.. Notably, just because you own a business does not mean you get to do whatever you want. You have to follow rules of so-called fair play in the market. You can’t destroy the competition because your market share gives you the power to do so *outside* the market. Doing so, like this rules change for everybody but Apple, is a casebook definition of an anti-trust violation. You keep thinking this is about stopping advertising, it’s not, it’s about destroying Apple’s competition for advertising so Apple can reap billions by NOT following market principles. The same idea applies in their arbitrary ban of Adobe’s cross platform compiler - just because it’s their app store, it’s not actually *their* app store, they just operate and profit off of it, they can’t turn around and set an arbitrary rule that hurts everyone but Apple’s bottom line without good cause (and Apple’s good cause in both of these smells a lot like MS’s good cause for not being able to separate IE from the OS).

Think of it like insider trading: It’s not against the law to know company secrets about upcoming business plans. It’s not against the law to buy or sell stock in your own company. It is, however, against the law to buy or sell stock for your company when you know something big that no one else does - it’s the exploitation of power for profit outside the market that makes something otherwise everyday into a crime. Apple can ban services like AdMob. Apple can create their own iOS app advertising service. They just can’t ban services like AdMob when developers and corporations have in good faith spent millions developing the service and applications that use it when they’re doing so to maximize their own profits by removing all serious competition to their new iAd service.

It’s not quite what you do in these cases, it’s *why* you’re doing it. Apple’s going to have a tough time convincing DOJ investigators they were protecting consumers with this new policy when they themselves are actively putting into place their own program that does exactly what they say they’re protecting consumers from, especially with so much money on the line.

Posted by Code Monkey on June 10, 2010 at 10:54 PM (CDT)

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I do not disagree with many of your points. You are right to some degree in each of them. I am just leaning the other way on a few.

1) AdMob is Googles advertising arm. Their foray into the App Store is not their big market. They still have a vast advantage in the search realm. Apple banning AdMob from the App Store by saying that their style of adds detract from the user experience does not destroy Googles advertising business. It just lessons it in one area. I think it wouldn’t be hard to convince the DOJ on that.

2) With the rise of the Android platform, it is not unrealistic to see the Android Market being a true competitor to the App Store soon. Especially if developers decide it is worth their effort to either develop for both sides, or they decide to “stick it” to Apple and focus only on the Google side. The App Store is now, and may remain, the market leader. But the gap will narrow. In cases like this it is common to see the type of “exclusive” marketing that will happen between Google and Apple. As far as I can tell, and this may be way off base, Apps developed for the Apple side will not cross over seamlessly to the Google market. iAd will not work in the Android market. Apple is just walling off their individual space and not trying to say Google can’t do the same on their side. Google is a big enough player that this is not devastating to their business. That may be the fine line. Apples actions do not severely damage Google. They will continue to succeed despite this move.

Again, you are making great points. This is most definitely an issue that warrants some investigation. I just feel that the circumstances will lead to a “no harm, no foul” conclusion. If this wrecked Google in some way, it would be different I am sure.

Posted by Mitch on June 11, 2010 at 10:48 AM (CDT)

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In this case I doubt the issue will be whether Google was actually hurt. You still seem very nebulous on what anti-trust is to stop, whether or not you actually make money or harm the competition is not necessarily the issue (just ask Martha Stewart). The question is did you try to gain an unfair advantage in a market through your pre-existing power in a way that does not obey fair market principles. Apple didn’t out-compete Google for the dominant advertising method on the iOS platform until Google dropped out altogether, instead, Apple used their power to set policies to simply eliminate Google from the iOS’s advertising platform and the appearance, at least, is that Apple did so that Apple could reap 100% of the profits from that particular market. Even if it turned out that users unilaterally rejected these iAd supported apps and iAd tanked before this case even goes to court (assuming the investigation brought charges), even if Google’s stock actually went up because investors see them as more focused on Android, none of that changes the *why* Apple appears to have made this move and, again, it’s the why that is the difference between legal and illegal.

Again, to use the insider trading example: if I sold off 20% of my corporation’s stock just because I want to raise funds, that’s not illegal. If I do so because I know that in a month’s time there is going to be an announcement for a very risky acquisition of another company and I’m hedging my bets by selling my stock while I know it’s high, that’s illegal. Whether it turned out that I actually lost money because it turned out investors approved of the acquisition and the stock soared is immaterial. I made investment choices based on inside information the rest of the public had no way of knowing, that’s illegal. Similarly, if it can be shown that Apple made this change in policy to eliminate competition to iAd, regardless of iAd’s success or failure, regardless of the actual damage to Google, that is illegal.

Again, to go back to my first point, so much of this is in the (very, very bad timing). I know Apple is eager to get an Apple controlled advertising backbone into iOS apps, there’s a lot of money on the line and if they can make it work but not be too intrusive it will make the platform that much more attractive to devs, but they should have had better lawyers to advise them how to avoid scrutiny. They could have either killed AdMob now and launched iAd next year, or they could have launched iAd now and figured out a technicality to eliminate AdMob down the road without such patently obvious hypocrisy in the reasoning.

I personally think Apple is about to get served, they’ve taken three very big “just because we can” actions this past year: They leaned on the music labels to stop giving any incentives to Amazon.com and others in regards to new releases under the implied threat that since Apple is the dominant online distributor of their goods they can’t afford to tick them off and see their artists’ new releases not featured clearly. They banned applications from the App store compiled by Adobe’s cross compiler with no justification whatsoever and, like in this AdMob case, the appearances are they did it to both harm competition and force devs into a more exclusive/dedicated relationship with the iOS. Then, of course, they banned 3rd parties from carrying out the basic advertising services under the guise of protecting users’ data, all the while implementing an analogous service themselves that will engage in the exact same sort of targeted ads. While you can explain away any one of them, perhaps, the three together constitute a pattern of abuse of their market position and the odds are they will be charged.

Posted by Code Monkey on June 11, 2010 at 11:28 AM (CDT)

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Ok. I concur for the majority. I do think Apple will be able to put up a solid fight by saying that the driving force was to protect and cater to their users. They can sight the block of Flash since this did not benefit them now. Like you stated, it may benefit them a few years down the road. But today, their reasoning was stability and usability of their device.

Apple has been very careful to preface their major moves with this “users best interest” blanket. It may be a smoke screen. I would guarantee that it is at least 50% monetary. But Apple has a reputation of turning a cold shoulder to others in the field when it does not serve their customer-centric model. That could be their saving grace.

Like I said, this is big for them. This is a serious microscope on the Apple way of doing business. In the past, they were never the biggest dog in the yard. Now they actually control some markets and they are trying to play like they are the underdog still. It could very well come back to bite them. I am still on the fence as to how I feel this will play out.

One more note on the music stuff. Didn’t Apple basically say that the RIAA and labels were trying to undercut iTunes by offering other digital retailers (especially Amazon) drastically reduced product in an effort to draw customers away from Apple? This would then…possibly…take some of Apples power away and allow the labels to start charging more. That was the way I interpreted it after reading many of the reports and articles. The labels were walking a mighty fine line as well. When they would charge Apple, say, $5.99 an album but turn around and sell it to Amazon for $2.99 it allowed Amazon to resale it cheaper. In my eyes, that is dirty pool. Apple was the best thing to happen to music in the past 15 years. Piracy was huge until Apple mainstreamed a way to get people to pay $.99 for a song. Then the labels saw that it was a hit and said “Let’s charge $1.29 or more for a song. We can make even more money now.” Apple had built a relationship with the customers and the labels did not want to honor it. And Apple fought. And they were flat-out winning until the labels refused to offer DRM-free offerings at the lower price point. Then Apple had to choose between the lesser of two evils. A little more money per song, or keeping an archaic protection on the files. I think they made the right choice, but they still get blamed for price gouging.

Sorry, I started ranting a bit. Music sales is one of my biggest hot points. The labels are screwing customers and artists alike. If you are not one of the “top earners” (i.e. Springsteen, U2, Pearl Jam, etc.) you are stuck getting a fraction of what you are actually earning for that company. I realize that they fronted those artists, but they continue to take the lions share even after the tab is paid. Uggh! I hate it when I get so far off point.

Anyway, I won’t really be shocked either way the DOJ plays this. It is such a thin line that is being walked. It may come down to how convincing Steve can be. He IS a much better salesman than Bill Gates ever was. :o

Posted by Mitch on June 11, 2010 at 3:02 PM (CDT)

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Mitch, a couple of things:

Blocking of Flash is not a significant part of this investigation (and, as you note, that part will probably fly). Everyone is confabulating the real issue: Apple blocking Adobe’s compiler for iOS and other mobile platforms (which is a big deal to Adobe but a huge deal for developers AND consumers) with the much more public, much higher profile urination match over Flash web technologies.

Next, so-called music piracy is still huge. Apple didn’t help that “problem” out at all. What Apple did was destroy album sales from those people who never were downloading from filesharing services in the first place but were the types to buy albums for just a couple of tracks. Physical CD sales still account for around 70% of all music sales and those sales are nearly 100% full albums. Conversely, for that 30% of sales that take place via online purchase and delivery, over 90% are singles. That’s the market that Apple helped to create and now has a strangle hold on as far as the labels are concerned.

For them, the market is a mixed bag. There’s no evidence these people are buying music instead of downloading it off Limewire (nor is there any evidence that people downloading music for free would be buying it, but that’s another subject), but there is most definitely that hugely skewed toward singles sales figure to make labels uneasy. Maybe it’s money they wouldn’t be making without iTunes, but maybe it actually represents lost revenue they’d have if iTunes and its ability to set so many terms with the labels didn’t exist.

That’s why the labels are perfectly justified in offering better wholesale and promotional terms to Amazon.com. Online sales didn’t do a thing to affect piracy, and though it may have created a vibrant, lucrative market for hot and new singles that couldn’t exist without it, it’s also done nothing to grow the industry as a whole and has arguably shrunk it further. Since Apple represents 70% of the online sales for the entire world, and, whether they are right or wrong (probably wrong), prevents the labels from having much control at all over online sales. Everyone else is fighting over that remaining 30%, many on country by country bases, so it’s not dirty pool at all, it’s as clean as anything can be in the music business. So when Apple says to the labels they don’t like this practice -wink, wink, wink- they’re arguing for price fixing, very illegal.

Posted by Code Monkey on June 11, 2010 at 8:23 PM (CDT)

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If…IF…labels were offering large discounts to Amazon to carry “album” sales over single sales, I would understand. But they are not. Amazon is doing the same thing Apple is doing. Offering the consumer the option of buying the good songs while not feeling robbed when an album has 2-3 decent tracks and the rest filler. That was a huge problem I used to have. And before iTunes, I would occasionally just pirate a track here and there if I knew the CD was basically garbage. I am one person that dropped piracy entirely once a viable option was presented to me. And I am not the only one.

By the way, I am really enjoying this discussion. I have learned quite a bit and also see where different streams of thought are making their way through these muddy waters. I just focus less on the “legal” or “business” side. I am far more concerned with how the users/customers are affecting the status quo. And how the companies try to meet these “new” customer demands. The times, they are a changin’... And I prefer the direction they are headed.

Now, I do not use only iTunes. I have purchased many songs and albums (and I still also buy albums pretty regularly) from Amazon and a few other sites along the way. I just do more business on iTunes than the others.

I will say that I flat-out think you are wrong that Apple did not help in the piracy problem at all. As I stated, I stopped almost immediately. I know not everyone did. But if only a handful felt the same as me…offer me a song for a buck and I will not steal it…that helped the problem. It may not have vanquished piracy, but it made it somewhat less prevalent.

We live in a different world than we did in the 70s, 80s and most of the 90s. That was the height, in my opinion, of the labels ripping off the music customers. The quality of music they were putting out was poor and they were charging way too much for an album that they knew was only going to have a couple of good songs. Digital distribution gives them a cheaper way to get music to the masses. That $.99 song on a server costs them almost nothing to distribute. No manufacturing costs for CD’s and liner notes. No shipping. No storage. It just sits on a server in a data farm. That data farm can hold infinitely more music than all the US warehouses combined. It is the way it should be right now. I do not have to find more and more space to store my music collection. I do not HAVE to buy an entire album from some new band before I know I will like even 2 songs. I buy that one or two, sample some others and then “Complete My Album” if I think it is warranted. I personally do not care how this has forced change on the recording industry. That is change that was overdue.

As for growing the industry. I can now find smaller and more obscure bands than I could have hoped for in the past. iTunes has given a lot of up and comers a place to showcase their talent. A friend of mine is in a band that hasn’t signed a deal yet. But they have an EP on iTunes that is getting them some notice (SUPERunKNOWN if you are interested). It IS growing the industry. Artists do not NEED the big labels as much as they used to. A small band can record some songs and get them online for very little bank. That is a huge bonus if you are an actual fan of music. So, the major labels may be feeling a bit of a pinch, but MUSIC is in a much better place. I am loving this market compared to my CD days of years past. And those CD sales are declining across the board. Walk into a Best Buy or Wal-Mart. The music sections are half the size they were 3-5 years ago. I worked at Best Buy and they were continuously discussing the stock of CDs that were just taking up space. Now they are ordering less hard media and more digital download cards. I think we will see this same trend in movies and games over the next decade as well. I still buy DVD/Blu-Ray discs, but I opt for the ones with digital copies for my iPhone and laptop. Soon, as digital HD titles become better quality, I will start downloading more. Again, it is only hard-drive space that way. No more overflowing shelves.